With inventories rising and demand waning, gasoline prices could plunge 50 cents a gallon from October's $3.86 peak average over the next few weeks, providing a lift for the economy and possibly becoming a factor in next month's presidential election.
Gasoline, now averaging $3.69 a gallon, is expected to fall to $3.35 or lower by late November. In some regions, prices have already sunk below $3.
"Most of the country is heading appreciably lower the next few weeks,'' says Tom Kloza of the Oil Price Information Service, who notes wholesale prices in some key markets have dropped from as high as $4.35 a gallon to $2.71. Pump prices typically lag big wholesale drops. But Kloza expects retail prices to sink five to 15 cents a gallon over each of the next three weeks.
The drop could provide a boost to consumer spending and influence next month's presidential race, where gas prices have been a hot-button issue for much of the campaign. Several battleground states, including Ohio, Pennsylvania and Wisconsin, are enjoying big price drops.
"Certainly, lower gas prices are helpful in terms of consumer spending by increasing disposable income,'' says Brian Bethune, chief economist at Alpha Economic Foresights. "And if prices come down at a rapid rate in the next three weeks, that would tend to help the incumbent. It may not be logical, but if people see problems with the high cost of food or gas, it's the president who tends to get the blame."
Gas prices have remained stubbornly high well past their traditional Memorial Day weekend peak, due largely to supply shortages and refinery woes on the West Coast and Midwest. But with oil inventories rising and production issues ebbing, prices have been easing the past week, a trend likely to accelerate. "This is very much gravity at work,'' Kloza says. "The faster prices soar, the more prone they are to panic sell-offs."
Kloza expects prices to bottom in the $3.30 range. Gasbuddy.com analyst Patrick DeHaan and energy analyst Brian Milne of Telvent DTN see a $3.35 bottom. Barring rising troubles in the Middle East or refinery issues in the U.S., prices could remain in that range through early 2013.
On Friday, gasbuddy.com was tracking some central Ohio stations selling gas for $2.97 a gallon. Gas prices remain stubbornly high in California -- the nation's priciest state averaging $4.51 a gallon -- although some stations are charging more than $5. Energy experts expect prices to bottom in the $4 range. "California is not completely out of the woods yet regarding supplies, and their refineries haven't been able to keep up,'' Milne says.
(Copyright © 2012 USA TODAY)